Offshore banking units

This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

End of attention

Specific rules apply to calculating the tax offset for foreign income tax paid on the assessable offshore banking income of an offshore banking unit (OBU).

The foreign income tax paid on the offshore banking income of an OBU is taken to be one-third (the current offshore banking eligible fraction) of the amount of tax actually paid. This approach mirrors the tax treatment of assessable offshore banking income, which results in only one-third of that amount actually being included in assessable income, with the other two-thirds being treated as non-assessable non-exempt income.

Example

Big Bank Ltd is an Australian resident bank that is declared an OBU. Big Bank Ltd derives offshore banking income and pays foreign income tax of $21,000 in respect of such income as follows:

Source

Income(A$)

Expenses(A$)

Foreign tax paid(A$)

Borrowing and lending activity - commission

15,000

900

1,500

Borrowing and lending activity - interest

20,000

600

3,000

Advisory activity

50,000

6,000

16,500

Total foreign income tax paid on assessable offshore banking income

85,000

7,500

21,000

The amount of foreign income tax paid on the assessable portion of offshore banking income is the amount of foreign income tax paid multiplied by the eligible fraction:

$21,000 x 10/30 = $7,000

This is the amount of foreign income tax that counts towards Big Bank Ltd's tax offset for the income year.

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